28 MV equity 134,250 259,000 29 Debt/Value 0.23 0.21 0.19 0.17 0.15 30 Levered beta 1.150 1.129 1.109 1.090 1.072 31 k equity 0.094 0.093 0.092 0.090 0.089 0.089 32 WACC 0.077 0.077 0.078 0.078 0.079 0.079 Row 3 x Rov 11 linear trend from initial to final value unlevered beta x [1+ (1-tax)*debt/equity] from CAPM and levered beta (1-t)*r_debt*D/V+k_equity*(1-D/V) 33 PV factor for FCFF 1.000 0.928 0.861 0.799 0.741 0.741 34 PV factor for FCFE 1.000 0.915 0.838 0.769 0.706 0.706 Discount each year at WACC Discount each year at k_equity 35 36 D. Present values Intrinsic val Equity val Intrin/share 37 PV(FCFF) 9,501 7,983 9,028 9,875 264,657 301,044 261,044 138.12 38 PV(FCFE) 8,699 8,531 9,364 10,010 212,004 248,607 248,607 131.54 39 2017 2018 2019 2020 2021 A. Input data P/E 17.90 16.93 15.95 14.98 14.00 Cap spending/shr 10.50 11.50 12.05 12.60 13.15 LT Debt ($M) 40,000 40,000 41,667 Shares (million) 1,890 EPS 4.00 Working Capital 4,000 43,333 45,000 1,893 1,895 1,898 1,900 5.95 7.22 8.48 9.75 6,000 11,000 16,000 21,000 B. Cash flow calculations Profits ($M, after tax) 7,500 11,275 Interest ($M, after tax) 728 728 13,683 758 16,092 18,500 789 819 = (1-tax rate) x r_debt x LT Debt Chg Working Cap ($M) Depreciation ($M) 20,500 Cap Spending ($M) 2,000 5,000 22,000 22,667 23,333 21,770 22,841 23,913 5,000 5,000 24,000 24,985 Terminal value FCFF ($M) FCFE ($M) 10,234 9,267 11,301 9,506 10,175 12,179 13,334 357,373 14,182 300,371 assumes fixed debt ratio after 2020 C. Discount rate calculations Current beta 1.15 Unlevered beta 0.963 terminal growth 0.04 tax_rate 0.35 r_debt 0.028 risk-free rate 0.025 market risk prem 0.06 from Value Line current beta/[1 + (1-tax)*debt/equity)] YTM in 2017 on Moody's Aa2 rated LT debt
28 MV equity 134,250 259,000 29 Debt/Value 0.23 0.21 0.19 0.17 0.15 30 Levered beta 1.150 1.129 1.109 1.090 1.072 31 k equity 0.094 0.093 0.092 0.090 0.089 0.089 32 WACC 0.077 0.077 0.078 0.078 0.079 0.079 Row 3 x Rov 11 linear trend from initial to final value unlevered beta x [1+ (1-tax)*debt/equity] from CAPM and levered beta (1-t)*r_debt*D/V+k_equity*(1-D/V) 33 PV factor for FCFF 1.000 0.928 0.861 0.799 0.741 0.741 34 PV factor for FCFE 1.000 0.915 0.838 0.769 0.706 0.706 Discount each year at WACC Discount each year at k_equity 35 36 D. Present values Intrinsic val Equity val Intrin/share 37 PV(FCFF) 9,501 7,983 9,028 9,875 264,657 301,044 261,044 138.12 38 PV(FCFE) 8,699 8,531 9,364 10,010 212,004 248,607 248,607 131.54 39 2017 2018 2019 2020 2021 A. Input data P/E 17.90 16.93 15.95 14.98 14.00 Cap spending/shr 10.50 11.50 12.05 12.60 13.15 LT Debt ($M) 40,000 40,000 41,667 Shares (million) 1,890 EPS 4.00 Working Capital 4,000 43,333 45,000 1,893 1,895 1,898 1,900 5.95 7.22 8.48 9.75 6,000 11,000 16,000 21,000 B. Cash flow calculations Profits ($M, after tax) 7,500 11,275 Interest ($M, after tax) 728 728 13,683 758 16,092 18,500 789 819 = (1-tax rate) x r_debt x LT Debt Chg Working Cap ($M) Depreciation ($M) 20,500 Cap Spending ($M) 2,000 5,000 22,000 22,667 23,333 21,770 22,841 23,913 5,000 5,000 24,000 24,985 Terminal value FCFF ($M) FCFE ($M) 10,234 9,267 11,301 9,506 10,175 12,179 13,334 357,373 14,182 300,371 assumes fixed debt ratio after 2020 C. Discount rate calculations Current beta 1.15 Unlevered beta 0.963 terminal growth 0.04 tax_rate 0.35 r_debt 0.028 risk-free rate 0.025 market risk prem 0.06 from Value Line current beta/[1 + (1-tax)*debt/equity)] YTM in 2017 on Moody's Aa2 rated LT debt
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
For each of the following scenarios, recalculate the intrinsic value of Chevron’s shares using the
The terminal growth rate will be 3%.
Chevron’s current stock market beta (cell B21) is 1.25.
The market risk premium (cell B27) is 6.5%.
![28 MV equity
134,250
259,000
29 Debt/Value
0.23
0.21
0.19
0.17
0.15
30 Levered beta
1.150
1.129
1.109
1.090
1.072
31 k equity
0.094
0.093
0.092
0.090
0.089
0.089
32 WACC
0.077
0.077 0.078
0.078
0.079
0.079
Row 3 x Rov 11
linear trend from initial to final value
unlevered beta x [1+ (1-tax)*debt/equity]
from CAPM and levered beta
(1-t)*r_debt*D/V+k_equity*(1-D/V)
33 PV factor for FCFF
1.000
0.928 0.861
0.799
0.741 0.741
34 PV factor for FCFE
1.000
0.915
0.838
0.769
0.706
0.706
Discount each year at WACC
Discount each year at k_equity
35
36 D. Present values
Intrinsic val Equity val Intrin/share
37 PV(FCFF)
9,501
7,983
9,028
9,875 264,657
301,044
261,044 138.12
38 PV(FCFE)
8,699
8,531
9,364
10,010 212,004
248,607
248,607 131.54
39](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdf73632b-a805-4dfd-a556-0d4a84ddece2%2Fef0c6338-ed9c-4bb6-a4e0-25a1307149c2%2Fh8wevua_processed.png&w=3840&q=75)
Transcribed Image Text:28 MV equity
134,250
259,000
29 Debt/Value
0.23
0.21
0.19
0.17
0.15
30 Levered beta
1.150
1.129
1.109
1.090
1.072
31 k equity
0.094
0.093
0.092
0.090
0.089
0.089
32 WACC
0.077
0.077 0.078
0.078
0.079
0.079
Row 3 x Rov 11
linear trend from initial to final value
unlevered beta x [1+ (1-tax)*debt/equity]
from CAPM and levered beta
(1-t)*r_debt*D/V+k_equity*(1-D/V)
33 PV factor for FCFF
1.000
0.928 0.861
0.799
0.741 0.741
34 PV factor for FCFE
1.000
0.915
0.838
0.769
0.706
0.706
Discount each year at WACC
Discount each year at k_equity
35
36 D. Present values
Intrinsic val Equity val Intrin/share
37 PV(FCFF)
9,501
7,983
9,028
9,875 264,657
301,044
261,044 138.12
38 PV(FCFE)
8,699
8,531
9,364
10,010 212,004
248,607
248,607 131.54
39
![2017
2018
2019
2020
2021
A. Input data
P/E
17.90
16.93
15.95
14.98
14.00
Cap spending/shr
10.50
11.50
12.05
12.60
13.15
LT Debt ($M)
40,000
40,000 41,667
Shares (million)
1,890
EPS
4.00
Working Capital
4,000
43,333 45,000
1,893 1,895 1,898 1,900
5.95
7.22 8.48 9.75
6,000 11,000 16,000 21,000
B. Cash flow calculations
Profits ($M, after tax)
7,500
11,275
Interest ($M, after tax)
728
728
13,683
758
16,092
18,500
789
819
= (1-tax rate) x r_debt x LT Debt
Chg Working Cap ($M)
Depreciation ($M)
20,500
Cap Spending ($M)
2,000 5,000
22,000 22,667 23,333
21,770 22,841 23,913
5,000
5,000
24,000
24,985
Terminal value
FCFF ($M)
FCFE ($M)
10,234 9,267 11,301
9,506 10,175 12,179
13,334 357,373
14,182 300,371
assumes fixed debt ratio after 2020
C. Discount rate calculations
Current beta
1.15
Unlevered beta
0.963
terminal growth
0.04
tax_rate
0.35
r_debt
0.028
risk-free rate
0.025
market risk prem
0.06
from Value Line
current beta/[1 + (1-tax)*debt/equity)]
YTM in 2017 on Moody's Aa2 rated LT debt](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdf73632b-a805-4dfd-a556-0d4a84ddece2%2Fef0c6338-ed9c-4bb6-a4e0-25a1307149c2%2Fia4klqj_processed.png&w=3840&q=75)
Transcribed Image Text:2017
2018
2019
2020
2021
A. Input data
P/E
17.90
16.93
15.95
14.98
14.00
Cap spending/shr
10.50
11.50
12.05
12.60
13.15
LT Debt ($M)
40,000
40,000 41,667
Shares (million)
1,890
EPS
4.00
Working Capital
4,000
43,333 45,000
1,893 1,895 1,898 1,900
5.95
7.22 8.48 9.75
6,000 11,000 16,000 21,000
B. Cash flow calculations
Profits ($M, after tax)
7,500
11,275
Interest ($M, after tax)
728
728
13,683
758
16,092
18,500
789
819
= (1-tax rate) x r_debt x LT Debt
Chg Working Cap ($M)
Depreciation ($M)
20,500
Cap Spending ($M)
2,000 5,000
22,000 22,667 23,333
21,770 22,841 23,913
5,000
5,000
24,000
24,985
Terminal value
FCFF ($M)
FCFE ($M)
10,234 9,267 11,301
9,506 10,175 12,179
13,334 357,373
14,182 300,371
assumes fixed debt ratio after 2020
C. Discount rate calculations
Current beta
1.15
Unlevered beta
0.963
terminal growth
0.04
tax_rate
0.35
r_debt
0.028
risk-free rate
0.025
market risk prem
0.06
from Value Line
current beta/[1 + (1-tax)*debt/equity)]
YTM in 2017 on Moody's Aa2 rated LT debt
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